Diwali: Did You Receive Rs 50,000 Worth Gifts, Is It Taxable Or Tax-Free? Deciphering Tax Rules In India

Diwali is considered the festival of light and prosperity across cities of India. The 5-day festival is celebrated with great enthusiasm and joy, diving into delicious sweets and exchanging gifts and happiness. During this festival, not only do citizens receive gifts from their relatives, but also a token of appreciation as employees in the form of bonuses at their companies. This is also the time of gifting tangible assets such as properties and vehicles. The demand for loans and gold is also high. But did you know, that not all of the gifts you receive during Diwali are tax-free?

The Income Tax Department has certain limitations to the amount of gifts you receive either at festivals or on any other occasions. It is generally, the one who is receiving the gifts is liable to pay taxes.

CA Chirag Chauhan, Founder and Owner of C A Chauhan & Co. are Chartered Accountant Firm, through his Twitter now known as X handler explained the tax rules on exchanging gifts.

Let's explore the income tax rules that apply to those wonderful tokens of love and appreciation, Chauhan said in his X feed. He explained the tax rules on gifts in five key pointers, here's what they are!

1. Threshold Value for Taxation:

There are limits above which Diwali gifts become taxable, as per the Income-tax Act of 1961. If you receive a gift from a non-exempted relative or a friend, and its value exceeds Rs 50,000 in a financial year, it becomes taxable.

Example: Imagine you receive gifts from friends A and B, worth Rs 30,000 and Rs 25,000, respectively. If these are your only gifts in the financial year, the total value of gifts is Rs 55,000 (Rs 30,000 + Rs 25,000), which exceeds the Rs 50,000 limit. In this case, the entire Rs 55,000 is taxable in your hands.

2. Taxation of Gifts from Employers:

During Diwali, many employers gift their employees with bonuses and incentives. Notably, these gifts are not taxable if their value remains below Rs 5,000 in a financial year.

Example: If the value of gifts from your employer exceeds Rs 5,000, these gifts will be considered a perquisite under the head "income from salary." Bonuses, regardless of the amount, are also taxable under the salary category, calculated by subtracting Rs 5,000 from the total gift value and then adding the bonus amount.

3. Tax-Free Diwali Gifts from Relatives:

Section 56(2) of the Income Tax Act provides a list of relatives whose gifts won't attract tax, regardless of the amount or occasion. These include your spouse, siblings, parents, and even lineal ascendants and descendants.

Example: If your cousin gives you a gift exceeding the threshold, it will be taxable since cousins are not considered exempt relatives under tax laws.

4. Types of Gifts:

As per the IT-Dept guidelines, a gift can take various forms, including money, movable property, or immovable property. Gifts received on the occasion of marriage are exempt from income tax. However, gifts received on other occasions, including Diwali, are taxable in the hands of the receiver.

Example: If your friend gifts you a Virtual Digital Asset (VDA) or a Non-Fungible Token (NFT) whose value exceeds Rs 50,000, it will be taxable. The giver must ensure that Tax Deducted at Source (TDS) has been deducted from such a gift. But if the specified relative gifts a VDA or NFT, it won't be taxed, although TDS obligations still apply.

5. Gift of Movable Property & Immovable Property:

The movable property encompasses shares, jewellery, art, bullion, and even virtual digital assets (VDA), such as cryptocurrencies and NFTs. Immovable includes land and buildings.

Example: If your friend gifts you a valuable painting for Diwali, it's considered a movable property and will be taxable if its value exceeds Rs 50,000.

It's essential to remember that certain items, like TVs or motor cars, are not considered movable property and, therefore, are not taxable gifts.

In conclusion, Chauhan said in his feed, "In a nutshell, when exchanging Diwali gifts, keep in mind that gifts from certain people and above a certain value might be subject to income tax. Understanding these rules ensures that you can enjoy the festival without any tax surprises. So, celebrate Diwali with joy, share your love, and be tax-savvy for a hassle-free festive season!."

On Sunday, India is celebrating the auspicious occasion of Laxmi Pujan.